Reference no: EM133398911

Case Study on Supply Chain Challenges - Supply Chains in 2021

While there's no denying supply chain logistics are always evolving, it's safe to say 2020 caused disruptions that most consumer goods brands aren't accustomed to seeing. Now, in 2021, there are new challenges companies must tackle to remain successful within the competitive eCommerce space. With that said, a shift to online retail, increase in consumer confidence, pent-up demand, and amassed savings all add up to a tremendous opportunity for digitally native brands. Companies who survived the volatility of 2020 likely did so by way of getting lean, selling through inventory, and focusing on working capital. At times, the last year's challenges have no doubt felt unwieldy. Suppliers and manufacturers from all over the world have largely been put to the test, encountering massive stock shortages, fulfillment delays, and lengthy backorders on common inventory items. We expect that supply chain challenges will persist, to some degree, for the remainder of the year - driven by increased consumer spend on products, sustained appetite for the convenience of buying online, and catch-up required from last year's bottlenecks. And yet, in spite of 2021's fragile supply chain network, companies are acclimating to these changes by addressing inefficiencies head-on and seeking to work smarter, not harder. The COVID-19 pandemic continues to disrupt the supply chain ecosystem with new and unforeseen barriers to both productivity and profitability. The following are 2021's biggest supply chain challenges faced by product-based businesses from all over the globe.

1. Material scarcity

Insufficient inputs have been a concern since the pandemic began, due to an abrupt rise in consumer demand like never before. Even now, companies and suppliers alike are struggling to meet this demand in the midst of limited availability for many parts and materials. In speaking to growth stage brands in our network, we've encountered everything from furniture manufacturers facing foam shortages to bike manufacturers losing payment terms due to maxed-out component suppliers. In fact, a recent survey conducted by the Institute for Supply Management (ISM) revealed 'record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices, and difficulties in transporting products across industries.'In light of these scarce inputs, a brand's ability to sustain its growth is highly dependent on working capital to weather downtime and ramp up for peak seasons.

2. Increasing freight prices

Contrary to initial expectations, the need for container shipping has increased considerably throughout the pandemic. With worldwide lockdown measures inciting a surge in eCommerce sales, the response has been a greater import demand for raw materials and manufactured consumer goods (a large percentage of which are moved in shipping containers). And since this demand was much more substantial than anticipated, it was met with insufficient shipping capacity and an unprecedented shortage of empty or available containers. As it often does, this scarcity has led to a spike in pricing. In the last year, freight rates from China to the West Coast have jumped by 240%.

3. Difficult demand forecasting

Demand forecasting in the middle of a global pandemic has added a new layer of complexity to many companies' supply chain management. The onset of COVID-19 essentially shattered the forecasts for countless retailers and suppliers of consumer goods/services, leaving them without a guide as to how much inventory to stock or manufacture at any given time. The challenge, then, has come from trying to improve predictions for customer demand, while in many ways having to rely on gut instinct rather than data-driven research. In this situation, supply chain managers are encouraged to abandon their bias, pursue new data sets for forecast models, and continually refine their results for the greatest accuracy.

4. Port congestion

Port congestion caused by the pandemic remains one of the top challenges for the world's supply chains, seeing as port owners, carriers, and shippers are collectively still scrambling for a viable solution to this problem. Congestion occurs whenever a ship arrives at a port but cannot load (or unload) because that station is already at capacity. Although the loading/unloading process typically goes according to plan, labor shortages and social distancing associated with the pandemic has notably steered things off course, creating major bottlenecks at a number of busy global docks. Due to this congestion and the backlog it has created, a myriad of companies are unable to get their goods out the door on time - which means carriers are also unable to adhere to their specified delivery commitments.

5. Changing consumer attitudes

Consumer attitudes and behaviors have changed in some big ways during the pandemic, as well, like lowering the threshold for delivery times and raising the requirements for a positive customer experience. The challenge comes in having an agile supply chain that can harness the power of automations to optimize fulfillment and handle accelerated demand with ease. An excellent example of this supply chain flexibility comes from a multichannel order fulfillment services and inventory management software. "The pandemic drove eCommerce demand to an all-time high. While a rise in order volume was a plus for merchants, new infrastructural needs and supply chain disruptions were major points of concern and the subsequent focus for our clients. Strategically, one of our biggest takeaways was the relationship management with customers through shared product forecasting, a defensive tactic that served to prevent negative experiences and maintain brand integrity."

6. Digital transformation

When it comes to supply chain operations, digital transformation and IoT can be a mixed blessing. Still, there are several technologies with potential to enhance the way we approach the traditional supply chain, including: artificial intelligence, drones and robots, electric vehicles, and on-demand delivery. But even though these systems/services are intended to make ecommerce processes more efficient and cost-effective in the long run, the challenge lies in implementing them across a company's existing supply chain.

Answer ALL the questions in this section.

Question 1

With reference to the above case study, critically discuss how Artificial Intelligence (AI) can assist in creating more accurate and reliable forecasting to strive towards reducing the impact of the issues noted in the case study.

Question 2

In relation to the above case study, critically discuss the "Bullwhip" effect caused by the supply chain issues.

Question 3

Based on the above case study, critically discuss how "Big Data" and "Data Science" can assist in reducing the congestion at the port.

Question 4

It has been argued in the case study above that, when it comes to supply chain operations, digital transformation and the Internet of Things (IoT) can be a mixed blessing. Critically discuss how the IoT can be used to create "Lean Value Chain" to reduce the issues discussed in this case study.